Brown’s Budget announcements

At first glance, Gordon Brown’s Budget speech left little to excite employers on the benefits front. While there were no nasty surprises as was the case last year when the Home Computing Scheme was axed, the Chancellor has once again proven that the devil is in the detail.

The background material accompanying the Budget has revealed that the government is set to crackdown on a loophole some employers have been exploiting around Employee Benefit Trusts (read Budget crackdown on employee benefit trusts). This has been allowing them to claim corporation tax before the employee has received the benefit and paid tax and national insurance on it.

Changes will also be introduced affecting the benefits provided†to retired employees. Until now, most benefits exceeding a limit of £100 have been taxable, but will now be provided tax-free where this is the case for existing employees.

Gordon Brown, ended his speech with the announcement that he was to cut the basic rate of income tax from 22p to 20p from April 2008. But he has since†been accused of “using smoke and mirrors” after it emerged that there would also be a rise in the national insurance (NI) ceiling to £43,000 from April 2009.

Ronnie McCombe, partner in KPMG’s People Services, says: “What the Chancellor has done here is a classic case of smoke and mirrors. The 2% reduction in income tax will seem like great news to everyone, but the much less prominently publicised increases in NI will in many cases offset the savings.”

While the higher rates of NI might seem attractive to employers running salary sacrifice schemes, Lesley Fidler, a director at Baker Tilly, said she suspected this would just “be the icing on the cake that someone had already decided to eat.” She pointed out that salary sacrifice schemes need to have a lot of employees opting in for it to make a profit.

Other announcements included:

• Further assistance to around 125,000 individuals who have lost their work pension when their employer became insolvent. The Chancellor said he would increase the budget for the government’s Financial Assistance Scheme from £2bn to £8bn. The accompanying background material to the Budget said members of affected pension schemes would receive up to 80% of their expected core pension rights, up to a maximum of £26,000.

• A partnership scheme with major retailers, including Tesco, Sainsbury’s, Asda, B&Q and Marks & Spencer, under which they would consider employing unemployed individuals who successfully pass work trials.

• Grants of up to £3,000 for small companies who employ individuals between now and 2011 who need to acquire basic skills.